Remuneration is the money and other types of compensation an employee or executive of a company receives for their work. It typically includes base salary or wages, bonuses, and commissions and sometimes excludes tips and reimbursement for expenses.
States differ on their exact components of remuneration when it comes to calculating taxes and workers' compensation insurance premiums. Small business owners should consult their state's revenue and labor departments for guidance.
What Is Remuneration?
Remuneration consists of the monetary and non-financial forms of compensation provided by an employer. In addition to the regular pay—in hourly wages or annual salary—it consists of commissions, bonuses (including those paid in stock), and overtime, holiday, vacation, and sick pay.
In some states, remuneration does not include the premium portion of overtime pay—for example, the "half" an hourly employee receives when working at a time-and-a-half pay rate.
Many states use the National Council on Compensation Insurance's (NCCI's) rules for determining what is and is not remuneration in regard to workers' compensation insurance.
How Does Remuneration Work?
Businesses can generally set up their own remuneration systems as long as they comply with federal and state laws.
According to the U.S. Equal Employment Opportunity Commission, businesses may not discriminate against job applicants, employees, and former employees based on their race, color, religion, sex (which includes pregnancy, sexual orientation, and gender identity), national origin, age, disability, and genetic information (including family medical history).
State laws may cover additional protected classes of employees. For example, California also forbids discrimination based on medical condition, marital status, and military or veteran status.
Types of Remuneration
The type of remuneration or compensation an employee receives depends on the type of worker they are and/or the type of work they're responsible for.
Executive, administrative, professional, computer, and outside sales employees who are exempt from overtime pay under the Fair Labor Standards Act are paid a salary for the work they do. A salary is usually expressed in annual terms, such as $50,000 a year, but is generally paid out weekly, monthly, semimonthly (24 times a year), or every other week, which works out to 26 times a year. Salaries are paid even during vacations, holidays, and paid leaves of absence but not during unpaid leaves.
Some salaried executives have employment contracts that specify the amount of salary they will receive. Owners of S and C corporations who work for the business are required by the Internal Revenue Service (IRS) to be paid a reasonable salary in addition to any other payments, such as dividends, they receive.
Some employees are paid at an hourly rate and only for hours that they actually work. Their employers are required to pay them overtime for any hours worked beyond their standard workweek, and they are classified as non-exempt employees.
Salespeople are usually paid on a commission basis. They're compensated based on their sales over a period of time, usually as a percentage of sales.
Bonuses and Incentives
Employees might be paid bonuses at various times and for various reasons. Some bonuses are performance-related while others are given to all employees in the company or to a workgroup at the end of a big project or a particularly good year. End-of-year holiday bonuses are also common.
Incentive programs are a common method used to motivate salespeople, and they can include non-cash gifts such as trips or wellness programs. Many companies offer both cash and non-cash incentives to executives, including stock options.
Other Kinds of Remuneration
Some employees are paid for piecework, such as the number of garments sewn or the pages of a book proofread, rather than by the hour. Others are paid a share of profits.
Payments to cover amounts that would ordinarily be withheld from employees' pay, including for Social Security and Medicare, are counted as remuneration.
The rental value of an apartment or home that's provided to an employee is a form of remuneration, as is the total value of any meals, store certificates, merchandise, or store credits given to an employee.
Expenses, including relocation expenses, that are reimbursed by the employer even though the employee hasn't provided documentation that they are valid expenses are considered to be remuneration.
The NCCI does not consider the following items to be components of remuneration: tips, employer contributions to a group insurance or group pension plan, dismissal or severance payments other than for time already worked and vacation time accrued, pay for active military service, employee discounts on items purchased from their employer, and expense reimbursements for which sufficient documentation was provided to the employer.
Remuneration and Taxes
Pretty much everything a business owner gives to an employee in the form of remuneration is going to be taxable. That means the business might have to withhold income taxes and pay certain payroll taxes on the benefit. You might also have to report the value of any remuneration on the employee's W-2 form.
The taxable value is easy to determine for regular pay, benefits, cash bonuses, and cash incentives, but the taxable value of non-cash remuneration can be more difficult to pin down. The IRS provides a booklet, Publication 5137, that serves as a fringe benefit guide and can help you sort out this complicated issue.
Check with your tax professional if you have any questions about how to pay and report remuneration.
The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.
- Remuneration is the money and non-cash compensation an employee or executive of a company receives for doing their job.
- It includes salary or wages, commissions, incentives, bonuses, and the value of rental properties, meals, and other perks that are paid for by the company.
- States vary in their definitions of remuneration for taxes and wokers' compensation.
- Small business owners should contact their state's revenue and labor departments if they have questions about remuneration.